Favorite "Play of 2008" Alive and Well

While central banks in most industrialized economies are either reducing interest
rates or expected to do so thus year, the Reserve Bank of Australia is expected
to further raise its rates to fresh 12-year highs. Overnight, the RBA revealed
in the minutes of its policy meeting this month a debate whether to raise rates
by 50-bps. The central bank ended up raising rates by 25-bps to 7.25% to counter
rising wage and price inflation. Last week, the Aussie hit multi-month highs
after Australia 's unemployment rate unexpectedly fell to a 34-year low of
4.1% last month from 4.3% in Dec. Interest rate futures are now pricing an
80% probability of a 25 bps rate hike next month. Diverging interest and GDP
growth rates were the backbone of our December calls for broad Aussie gains
versus GBP, EUR and USD.

Specifically, we called favoring AUDGBP pair as our "favorite trade of
2008" as the pair is now up 7.5% year to date. Considering the prolonged
downturn in UK housing, the resulting downturn in the British economy and
the need for the Bank of England to slash rates by 75-bps to 4.50% this year,
we expect the Aussie to reach the 50-British pence mark later this year,
which is the highest since March 1997.

AUDUSD: We continue to see a 60% chance for the Australian dollar to
reach parity against the US dollar later this year, especially in the event
that global risk appetite remains largely intact. Interim resistance stands
at 92.70 cents, followed by 93.20. Prolonged strength in the price of wheat
and copper, all of which are major Aussie exports, shall also will also bolster
the currency's standing and the nation's trade balance.

Euro Capped at $1.4800

Euro ekes out fresh gains amid a combination of rising risk appetite and prolonged
USD weakness in the aftermath of the long holiday weekend. Friday's 1.9% annual
increase in French non-farm payrolls and a 4.4% annual increase in Spanish
inflation for kept the bears at bay. Although tomorrow's release of the US
housing starts and building permits figures for January may signal further
deterioration, our optimism for prolonged euro/usd gains remains guarded as
we expect the market to retest preliminary support at 1.4650 and 1.4620. Upside
capped at 1.4780, followed by 1.48.

Our bearish EURAUD outlook signaled last Thursday is on track as the
pair has dropped from 1.6300 to 1.5995.as expectations of further RBA tightening
contrast with increased pressure on the ECB to cut rates before end of Q2.
Nonetheless, our positive AUD outlook versus EUR remains more limited in scope
than that against GBP and USD.

Yen Drags Down Dollar

The overnight decline in USDJPY to 107.50 from 108.25 is a reflection of overall
dollar losses than JPY strength, which is reflected in a rebound in gold to
$925 per ounce and the aforementioned jump in EURUSD above $1.4720. But the
yen remains weak against non USD currencies as risk appetite returns to global
markets. The lack of US economic releases may make way for modest gains in
equities today, which maintain negative pressure on the USD, especially ahead
of tomorrow's starts/permits report. Interim support stands at 107.20, followed
by 106.60. Upside capped at 107.80.

Sterling Heads South on Northern Rock Consequences

Sterling sustains broad damage as the nationalization of UK mortgage lender
Northern Rock is expected to shed employment losses in the banking industry,
weigh on already struggling lenders and exacerbate the government's poor finances.
While our month-end call stands at $1.9500, we see the possibility of testing
1.9420 this week. Sterling's ability to make corrective bounces of at least
50-75 pips allows the possibility for a rebound to as high as 1.9560 (38% retracement
of 1.9720-1.945), but resistance weighs at 1.9600 (50% retracement of said
move), which may be challenged on tomorrow's US housing data.

Loonie Drops on Soft CPI

Canada's CPI rose 2.2% in the year ending in January, while core CPI rose1.4%,
well below the 2.0% target, which opens the door for a 25-bp cut to 3.75% next
month. Dovish comments from Bank of Canada Governor Carney support this outlook
and open the door for 3.50% by year-end. The 2.9% decrease in Dec wholesale
sales just released now should help boost USDCAD towards 1.0080, with resistance
imposing at 1.0120. Support climbs to 1.0020.

Ashraf Laidi is Chief FX Strategist at CMC Markets and
author of "Currency Trading and Intermarket Analysis: How to Profit from
the Shifting Currents in Global Markets" Wiley Trading.

This publication is intended to be used for information
purposes only and does not constitute investment advice. CMC Markets (US) LLC
is registered as a Futures Commission Merchant with the Commodity Futures Trading
Commission and is a member of the National Futures Association.